TheColumbia Valley - Columbia Valley Pioneer

14 • The Columbia Valley Pioneer September 14, 2007
Brendan Donahue
Investment Advisor
Phone: 342-2112 YOUR MONEY
GIC Rates as of September 11 th
cashable 4.11%
90 days 4.67%
1 yr 4.80%
2 yrs 4.82%
3 yrs 4.90%
4 yrs 4.95%
5 yrs 4.95%
New High Interest Savings Accounts
No minimum balances 4.10%
No fees
Interest calculated daily, paid monthly
Redeemable at any time
RRSP and RRIF eligible
Investments
GICs, Stocks, Bonds, Preferred Shares,
Income Trusts, Mutual Funds,
High Interest Savings, RRSPs
Rates subject to change without notice.
Subject to availability.
Brendan Donahue, BCOMM, CIM, FMA
Investment Advisor, Berkshire Securities Inc.
342-2112
Jason Elford, CFP
Investment Advisor, Berkshire Investment Group Inc.
342-5052
The Columbia Valley’s
Premiere Wealth
Management Firm
Planning
Estate Planning, Retirement Planning,
Retirement Projections,
Income Splitting,
Registered Educational Savings Plans
Services
RSP Loans, Mortgage Referrals,
Pension Transfers, Group RRSPs.
Ask us about our free
consultations and
no fee accounts.
Borrowing for your RRSP
According to Statistics Canada, tax fi lers aged 25-
64 had 4.5 times more unused RRSP room at the end
of 2004 compared to 1992, after adjusting for infl ation.
It’s clear many Canadians aren’t making the most
of their RRSP contribution room each year.
In most situations, you’re better off borrowing to
make your RRSP contribution if the alternative isn’t
contributing at all, or contributing later on down the
road. Th e downfall is you won’t get to claim the interest
as a tax deduction, but you’ll have the money in
your plan now, growing tax-free for your retirement.
Unlike borrowing to invest in non-registered accounts
you cannot deduct the interest expense of borrowing
to invest in an RRSP account.
Whether or not borrowing makes sense for you
depends upon three factors:
1. the interest rate and term of the loan – the lower the
interest the better
2. the rate of return inside your RRSP – the higher the
return the more eff ective borrowing to invest will be
3. the number of years until you begin making withdrawals
from your RRSP.
Borrowing makes the most sense when you’re a
considerable ways from retirement, say 20 to 25 years.
Th e immediate compounding and tax-free growth will
outweigh the additional interest charges. If you borrow
to invest in your RRSP right before retirement then
the investment returns should outweigh the borrowing
costs in the short-term or your marginal tax rate
should fall signifi cantly immediately after retiring.
Let’s look at an example. Dennis is 40, and plans
to start drawing money out of his registered plan in 30
years, when he’s 70.
Dennis has $21,000 of unused RRSP contribution
room. Dennis can aff ord $400 per month, and
can use this either to make principal and interest payments
on an RRSP loan, or simply put the $400 per
Market Action
As of September 11th, 2007 Weekly Gain/Loss YTD
S&P/TSX Composite Index 13,625 -65.00 5.55%
Dow Jones Industrial Average 13,127 -230.00 5.33%
Nikkei 16,765 -759.03 -8.58%
Oil (New York) $77.49 3.45 26.93%
Gold (New York) $712.20 30.30 11.28%
Canadian Dollar (in US dollars) $0.9501 0.0033 13.54%
Most people review their Investment portfolio regularly!
When was the last time you reviewed your Life Insurance Portfolio?
In our ever changing world it is
important that your
insurance is reviewed
constantly to ensure that it
is the best and most
appropriate coverage
available.
As one of the valley’s only
truly independent Life
Insurance brokers, I have
access to most of the major
carriers and can help you to
ensure that you have the best
products to suit your needs.
For a complimentary review
and to see if we can lower your
cost or improve the quality of
your existing coverage call me at
342-5052 or just stop in to the
Berkshire offi ce and ask to see
Jason.
Jason Elford has been a wealth management specialist in Calgary for more than 9 years. Now a full time resident of Invermere,
Jason recently joined the Berkshire offi ce with Brendan Donahue.
month into his RRSP. He plans on reinvesting his tax
savings each year in an open account.
Assuming Dennis can borrow at a rate of 6 percent
over fi ve years, he can aff ord to take out a loan
of approximately $20,700. Assume also that he can
earn an 8 percent rate of return both inside and outside
his RRSP, and his marginal tax rate is 46 percent.
Th erefore, at the end of 30 years, Dennis would have
an additional $6,900 for his retirement had he borrowed
$20,700 and put this into his RRSP rather than
contributing $400 per month for fi ve years into his
RRSP.
If you think borrowing for your RRSP contribution
is for you, be sure to speak to your fi nancial advisor
for more information.
Swapping with your RRSP
If you haven’t given much thought to the type of
investments held inside your RRSP compared to theinvestments
in your open accounts, you should. Th e
reason is diff erent types of income are taxed at diff erent
rates.
For example, the capital gains inclusion rate is 50
percent and the new rules relating to eligible dividends
make earning these types of investment income preferred
to interest income. Interest income remains at
the top of the scale and is taxed at the highest rate for
all income tax brackets.
So, if you’re investing both inside and outside a
registered plan, to the extent that you want to hold
interest-bearing investments, it makes sense to hold
these investments inside your registered plan where
they’re tax sheltered.
To the extent you hold equities, hold these in your
open accounts where you can take advantage of the
lower tax rate on capital gains and dividends.
Jason Elford
Certifi ed Financial Planner
Insurance Advisor
712 - 10th Street, Invermere
Phone: 342-5052